New sources of development finance?

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This Friedrich-Ebert-Stiftung working paper looks at the French and Chilean air-ticket taxes, the international finance facility, remittances, currency transaction taxes, carbon taxes and a tax on arms exports.

Meanwhile, Lawrence Summers argues that development goals would be helped if developing countries diversified their reserve holdings to hold more international stocks and bonds instead of mostly US government debt:

The essential agency problem is that if I am the central bank governor of developing country X, and I decide to adopt the new “let’s invest in risk assets” scheme, and we have five good years and we earn a cumulative 46 percent rather than the cumulative 22 percent we could’ve earned in Treasury bills, I will take great satisfaction in having earned the 24 percent. My finance minister may say, “I’m glad that you did that.” At my retirement dinner as a central bank governor perhaps my innovation will be noted and will be applauded. If on the other hand over my five-year horizon I invest in risky assets and I end up behind, I am likely to lose my job and be humiliated.

And so while the national interest may be in taking risks of this kind, the individual incentives for the bureaucrats in central banks who cannot be highly incentivized to do this, and can be highly penalized for failure are likely to be quite substantial… It’s easy to defend the rule. We don’t speculate with our reserves. We invest our reserves in short-term, safe, liquid instruments because we need our reserves to be short-term and safe. It’s clear, it’s obvious, it’s not very sensible, but it is clear and it is obvious. Once one admits of investing in risky assets, well, you know, we could always sell them if we needed to, so why don’t we only keep six months short-term debt?

Summer's also suggests that perhaps an international entity could be created to “take on some kind of fiduciary responsibility for handling the management of these reserves on behalf of countries” and that the IMF should establish itself a hedge fund.

Let me conclude where I began. It is an oddity of our moment that the flow of capital is so large from developing countries to developed countries. That oddity is likely to be with us for some time. Several trillion dollars are now being held by developed countries in forms where they will earn close to zero in their domestic terms. I will serve my purpose tonight if I’ve gotten you to think about the fact that there is there, potentially, a very substantial opportunity to make developing countries and people who live in them better off by doing better than earning zero.

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